Financial news conveniently available at your fingertips

May 24, 2017May 24, 2017

To Prime or not to Prime?

In a recent interview with The Economist, President Trump discussed his economic agenda, which, among many initiatives, includes infrastructure stimulus spending, passing a new healthcare bill, and improving the quality and quantity of American manufacturing.

In one particular segment of the interview, Mr. Trump was questioned about his tax plan, which is expected to increase the nation’s deficit, something that Ronald Reagan’s tax plan did not do. In response, President Trump stated that the deficit will only increase temporarily in order to prime the pump, a phrase he insists that he invented. After asking the editors if they had heard of the phrase “priming the pump”, Mr. Trump responded, “Have you heard that expression used before? Because I haven’t heard it. I mean, I just…I came up with it a couple of days ago and I thought it was good. It’s what you have to do.”

While I hate to burst Mr. Trump’s bubble, he did not coin the phrase “prime the pump”. Priming the pump is a common metaphor used in economics that encourages stimulating an economy’s production and income. The phrase originates from Keynesian economic theory. Simply put, it means that a government could increase the productivity of its economy if it increases cash spending through a stimulus package, spending on job-finding-programs, or other fiscal expansionary policies. In Mr. Trump’s case, it means to increase economic production through cutting taxes, so as to increase private expenditure and lead to greater economic growth.

Interestingly enough, priming the pump, or fiscal stimulus spending, is usually advised during periods of low economic activity; such as recessions or depressions. It was commonly used during President Roosevelt’s administration as a means to bring the U.S. economy out of the Great Depression via the New Deal. The term was also used frequently during the Great Recession of 2008-2009 under both President Obama and President Bush’s administrations. However, the United States currently exists in a period of economic prosperity. The Dow Jones Industrial Average has crossed the benchmark of 21,000 points several times this year and unemployment cooled down to 4.4%; its lowest level in almost a decade. The last time unemployment was lower, was May 2001; 16 years ago.

Not only did Mr. Trump use the phrase incorrectly, but he also claimed to have just invented the phrase, which is false for two reasons: one, the phrase has existed for around 100 years, and he has been using the phrase since last year. He used it in a December speech in Des Moines Iowa.

While many are unsure what exactly the President meant during his interview, his newly released budget (a future post on this soon) will provide some color on the details of his version of “priming the pump”.

Post navigation

Menu

Text Widget

This is a text widget. The Text Widget allows you to add text or HTML to your sidebar. You can use a text widget to display text, links, images, HTML, or a combination of these. Edit them in the Widget section of the Customizer.